Best Practices for Year End Payroll Reporting

by Megan Allen

2020 was a very trying year for employers and employees alike.  We understand the struggle is real.

With the end of 2020 rapidly approaching, I’m sharing some “gotcha” items that we frequently see. A little bit of verification and review will save you a lot of headaches, and kick off 2021 on the best foot possible.

Clean Data is Key
  • Avoid time consuming W2 corrections, which can also lead to costly tax reporting amendments, by having your employees verify the spelling of their name, their current address, and ensure their social security numbers are correct. Pro tip: if it’s only a misspelling of the employee name, the employee can strike through the misspelling; correct the spelling; initial it; and file their return. Make sure you update it in your payroll/HCM system.
  • If you have changed payroll providers mid-year, ensure all wages paid prior to working with your current company are correct so that the W2s are processed correctly for your employees.
Update All Reportable Data
  • Make sure all manual/handwritten checks to employees have been submitted to your payroll provider to ensure that compensation will be included in the W2s in January.
  • Prior to your last scheduled payroll, alert your payroll provider if you think you will have anything additional that will need to be included in your final 2020 numbers so that they will not close and process your year-end before that data is received.  Examples of these items include, but are not limited to, taxable fringe benefits, third party sick pay, S-Corp medical.
Health Insurance and FFCRA/CARES Act
  • Make sure your health insurance policies, FSAs, HSAs, 401(k)s are paid up.  If you have employees that want to cap out for the year, verify the amounts they’ve already contributed so they don’t over contribute, which can require amendments to both company and employee tax returns to correct.
  • If you are subject to the Affordable Care Act (ACA), review the insurance-related information for all employees covered by your insurance policy during the year; depending on your policy, this will also require spouse/dependent information. If you manage benefits via your payroll/HCM application, verify the policies, premiums, employer portions, etc. are correct, especially if your plan changed mid calendar year.
  • Verify that all FFCRA/CARES Act wages have been applied/paid properly during the year.  These wages will affect the year-end tax forms for both employer and employee.
Don’t Forget Your Independent Contractors
  • If you paid independent contractors more than $600.00 in the tax year, make sure you are using the right form.  The IRS has brought back the old 1099-NEC (Nonemployee Compensation) form. Exceptions apply for S- or C-Corp contractors.
Deadlines
  • W2s and 1099s need to be made available or post-marked to your employees no later than February 1, 2021.
  • Affordable Care Act (ACA forms) 1095-B or 1095-C forms need to be made available or post-marked to your employees no later than March 2, 2021.
  • And don’t forget to send copies of your 941s, 940, and all W2s to your accountant to file your business tax returns.

On behalf of the Paragon team, I would like to wish everyone a healthy, happy, and prosperous 2021!

 

Megan Allen has been with Paragon since its inception in 2007 and has held almost every client-facing position within our organization.  She was drawn to the challenges of managing tax and compliance for our clients.  As Paragon’s Director of Tax, Megan thrives on managing the back-office processes that are core to an outsourcing partnership with Paragon.